Editorial: State in no position to say 'no' to new revenue talks

Monday

Sep 28, 2009 at 12:01 AMSep 28, 2009 at 7:54 PM

With the state's budget problems not exactly rectifying themselves, a recent report by the state Legislature's fiscal arm points the way to a largely untapped supply of revenue. The study by the Commission on Government Forecasting and Accountability examined the potential benefits and risks to taxing services across the state. A wide net of such new taxes could bring in as much as $7.3 billion. No recommendations are made in the report, and we're not endorsing anything ourselves at this point, but a number like that is compelling enough to deserve debate.

With the state's budget problems not exactly rectifying themselves, a recent report by the state Legislature's fiscal arm points the way to a largely untapped supply of revenue.

The study by the Commission on Government Forecasting and Accountability examined the potential benefits and risks to taxing services across the state, from pet grooming and haircuts to movie tickets, bowling alleys, medical and legal services. A wide net of such new taxes could bring in as much as $7.3 billion.

No recommendations are made in the report, and we're not endorsing anything ourselves at this point, but a number like that is compelling enough to deserve debate alongside the various tax hikes, including on income, already being considered in a state that few believe can cut its way out of this mammoth budget deficit.

This stands out because it could address what the nonpartisan Center for Tax and Budget Accountability has labeled Illinois' "antiquated revenue system that cannot fund public services in a modern economy." The state's reliance on a flat 3 percent individual income tax - the lowest overall rate of the 42 states with income taxes - obviously isn't getting the job done, and the sales taxes that we do collect still leave us with "one of the most narrow sales tax bases in the country."

Indeed, Illinois' service sector sees only 17 taxes - the fifth lowest in the nation, mainly covering electric, telecommunications and natural gas utilities, plus hotels and car rentals - while other states impose levies on as many as 160 services. Yet the service economy in the Land of Lincoln represents almost 45 percent of the state's business, more than any other state in the region and up dramatically in the last 30 years.

The tax group supports tapping into that potential revenue vein because it fits in with its four key elements of sound tax policy. Those are that taxes ought to be: one, responsive to growing economic sectors; two, able to raise serious revenue; three, stable sources of funding in economic downturns; and four, fair enough to spread the burden over a large group.

Still, there are reasons to be leery. This would create an added burden, particularly on small businesses. Some options also would create more problems and ought to be shelved. First, about half the money this study suggests could be raised would come from so-called "business-to-business" transactions - one company buying or contracting services from another. Those who argue that those higher costs could cripple some businesses may have a valid point. Avoiding them would still leave an estimated $3.6 billion of new flow into state coffers.

Likewise, taxing medical and legal services is probably a non-starter. People who need those services don't always have a choice. Think of it this way: You can get a haircut at home, but you can't as easily treat your kid's ear infection or fight a lawsuit on your own. We'd favor caution here, erring more on the side of taxing "wants" than "needs." The tax on luxury services being pushed by Comptroller Dan Hynes in his gubernatorial campaign is a launching-off point there.

To be sure, most of these added costs on businesses would be passed along to consumers. But unlike, say, paying the income tax, consumers have more control over determining their individual burdens because they can weigh their purchasing choices. It's also important to point out, for those concerned about Illinoisans crossing state lines to buy services, that our neighbors tax far more in these categories than we do. On the low end, Indiana has 24 service taxes. It goes up to 94 for Iowa; Wisconsin has 76. All three focus far more on luxury and amusement fees than Illinois does.

We're fast approaching another election year, of course, and as a result those running for office will likely attempt to ride this debate off the rails before it gets anywhere. Business lobbyists have money and, therefore, influence and they'll use both to demand lawmakers pick on someone else to fix the state's budget woes. But at the end of the day, Illinois still faces this reality: State government can't pay its bills. No matter the efforts to whistle past the graveyard, this year's budget is a mess - unconstitutionally unbalanced, as far as we're concerned, to the tune of billions upon billions.

Again, we are as irritated as anybody with the lack of leadership over many years in a state government that has steadfastly refused to confront its major challenges, from corruption to public pension reforms. As such, we share the lack of confidence in Springfield to spend additional revenues derived from any tax increases judiciously.

That said, those Illinois politicians who believe they can keep doing the same old things while expecting a different result are crazy, pretty much by definition. This structural deficit is not going away by itself. To declare discussion about alternative revenue options DOA would just be foolish.

Peoria Journal Star

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